Abstract
This study seeks to find out the factors that influence financial performance of listed foods and beverage companies in Nigeria. The dependent and independent variables of the study were searched out from literatures of previous works. ROA measured as EBIT to total assets, firm size as natural logarithm of total assets, leverage as total debt to total assets, intangibles is the total sum incurred to acquire the assets, while liquidity ratio is measured as current assets to current liabilities and firm age is the number of firm‟s years in existence. The study used correlation research design, as data on ROA, firm size, firm age, leverage, intangible assets and liquidity ratio were sourced from published annual report of five (5) out of nine (9) of these firms from 2004 – 2013.The result obtained from fixed effect regression model, documented that firm age, leverage and liquidity ratio are determinantsof financial performance of listed foods and beverages companies. Therefore, the study recommends, among others that managers of these firms should never compromise but always maintain reasonable level of liquid assets in order to meet immediate needs of the firm, the option for leverage should be considered for only profitable ventures and for a lower cost of returns.
This study seeks to find out the factors that influence financial performance of listed foods and beverage companies in Nigeria. The dependent and independent variables of the study were searched out from literatures of previous works. ROA measured as EBIT to total assets, firm size as natural logarithm of total assets, leverage as total debt to total assets, intangibles is the total sum incurred to acquire the assets, while liquidity ratio is measured as current assets to current liabilities and firm age is the number of firm‟s years in existence. The study used correlation research design, as data on ROA, firm size, firm age, leverage, intangible assets and liquidity ratio were sourced from published annual report of five (5) out of nine (9) of these firms from 2004 – 2013.The result obtained from fixed effect regression model, documented that firm age, leverage and liquidity ratio are determinantsof financial performance of listed foods and beverages companies. Therefore, the study recommends, among others that managers of these firms should never compromise but always maintain reasonable level of liquid assets in order to meet immediate needs of the firm, the option for leverage should be considered for only profitable ventures and for a lower cost of returns.
CHAPTER ONE
INTRODUCTION
1.1 Background to the
study
The
question of firm performance is very important for different group of people.
This is because all agents that have to make any financial decision about a
company are concerned with its financial position (Vira2008). Thus, owners,
managers, potential investors, banks, other financial institutions, creditors,
business partners, employees, and government are always interested in models
that help to analyse and predict the performance of the companies. Little
wonder, the primary motive of most business organizations is profit maximization,
wealth creation and other secondary objectives that are deemed important to
such organizations(Pathirawasam&Adriana, 2013). On this note, Kolawole
(2013) opined that, organizations seek to improve performance, create value in
terms of additional wealth for their shareholders and increase satisfaction to
their customers and other stakeholders. This view was further confirmed by
Nousheen&Arshad (2013) that maximizing the profit of a firm is one of the
major objectives of managers.
Therefore,
the profitability of a firm is a key concern as it has the ability to absorb
market shocks and contribute to the stability of the system in general and the
firm specifically. Hence, profitability of a firm has become the major
criterion in determining its financial performance, since investors and other
stakeholders pay most of their attention on profitability before dealing with
firms.However, some of these businesses have experienced the opposite of their
stated objectives, thus for organizations to achieve their set objectives.They
must employ different types of firm performance management systems (Kolawole,
2013), considering the fact that, a firm‟s performance is likely to be
determined by different factors. A firm is a legal fiction which serves as a
nexus for a set of contracting relationship among individuals. Regardless of
this analysis, firms are no longer viewed as identical black boxes in any given
market structure but as dynamic collections of specific capabilities influenced
by distinctive organizational structures and specific decisions (Hawawini,
Subramaniam&Verdin 2003).
To
determine the factors that influence performance of business organizations,
(Capon, Farley &Hoeng, 1990) as cited by Bala&Matthew (2005), suggest
that performance of firms can be explained by various characteristics that
could be firm specific or and industry specific alike. Consequently, certain
factors are likely to either improve or impair a firm performance. Therefore,
emphasis of corporate performance cannot be over looked to a reasonable extent
since the performance of firms could be and are most often used as yardstick or
benchmark as well as comparison measures to know if the motives behind the
establishment of these business organizations have been achieved or not.
In
the same vein, the business world will always require management to be creative
in an effort to improve their performance; they should have the ability and
take advantage of opportunities to improve company’s performance. To improve
the company’s performance is to create strategies, techniques and business
tools that are appropriate and suitable for the company as high firm
performance will increase the company’s stock market prices and investors will
respond positively.
The
concept of performance has become more prominent because of its application to
everything and everywhere, thus serving as basis for comparison. Firm
performance is a core concept in the business world, as it is one essential
tools of business management (Francoise, Gerald &Mansi, 2005). Performance
is used as a measure to dictate organizational growth and development. The
performance of an organization shows the level of improvement made by a firm
within a period of time that is, firm performance serves as a barometer that measures
the success of the company, hence used as a bench mark for investors to invest
their funds.
Furthermore,
performance has been described by Sabine and Michael (1990), to be a
multi-dimensional concept. It is also seen to be a complex phenomenon and this
has consequently increased the studying of firm performance and its
determinants globally. According to Andreas (2009), determinants of firm
performance are considered as a well addressed research topic in the field of
Industrial organization however, there seems to be no consensus as to the
actual proxy and measurement of firms‟ performance.
More
so, firms‟ performances over time have been measured differently by
researchers‟ fewer than three major groupings: profitability ratios, growth
rates and margins. Based on this, Kemp, De dong &Wubben (2003) &Costae
(2006), concluded that performance can be defined and measured in several ways
depending on the goals and context of the research.
However,
Mark, Susan &Randall (1997), kolawole (2013) and Yana (2010) have suggested
that, the use of modern financial ratios as performance measures are best
because they consider some degree of market risk and create more value as
against classical financial ratios that provide information of performance from
the past. So, modern financial ratios are regarded more relevant when compared
to the classical financial ratios. Nevertheless, the recent development and use
of proxies like ; quality of management and quality of intellectual capital, environmental
factors and others are considered and seen to be more efficient (Costea, 2006)
in determining the performance of a firm .
Again,
literatures on business policy have considered two major streams of research on
the determinants of financial performance. One is based primarily upon an
economic tradition, emphasizing the importance of external market factors in
determining firm success. The other line of research builds on the behavioral
and sociological paradigm and sees organizational factors and their fit with
the environment as the major determinants of performance. In this school of
thought, little direct attention is given to the firm‟s competitive position
and advantage and hence drives firm profitability (Noel, Sebastian
&Eduardo, 2009). Similarly, economics traditionally have disregarded
factors internal to the firm and of these internal factors will be enumerated
and discussed adequately.
Firm
size as an internal factor of a company has been considered a very important
determinant of performance. This is because the size of a firm determines its
level of economic activities and the possible economics of scale enjoyed by the
firm.When a firm becomes larger it enjoys economics to scale and its average
cost of production is lower and operational activities are more efficient.
Hence, larger firms generate larger returns on assets. However, if the top
management loses control over certain strategic and operational activities the
reverse might be the case (Pathirawasam& Adriana, 2013).
On
the other hand, smaller firms do not enjoy economics of scale of which their
average production cost could be higher than the larger firms but the
flexibility in the system and the fewer top management; provides opportunity to
make quick decision, adapt to changes in the environment that result to larger
average returns or profits for the firms. Firm size can be measured by the
total asset of a firm, hence it is believed that the larger the firm‟s total
asset, the larger the size of the firm. Although, studies like Pavlos (2007),
Owen and Paul (2003) used number of employees, natural resources and economic
resources as a measure for firm size.
Most
scholars have agreed that firm age determines growth as well as performance
(Muhammad &Shahimi 2013). They believethat the hazard rate of a firm will
fall with time and firm survival increases with age of the firm. Thus, this
statement can be considered true because new firms are perceived unable to
achieve economies of scale and they rarely have the sufficient managerial
resources and expertise.While, some scholars made a conflicting remark stating
that old firms are not flexible enough to make rapid adjustment, indicating
barriers to innovation and profit making. Their organizational rigidities limit
their growth by inhibiting change as they become harder to change over time,
since most of the firms still own and use outdated machines, plants and
equipment that limit their capability to innovate.
However,
studies on firm age did not give conclusive evidence on the relationship
between performance and the measurement of age. Several studies like Muhammad
and Shahimi (2013) used different variables to measure firm age. Though, most
literatures definedfirm age as the length of time a firm has been in existence.
It could also be the number of years in existence after listing on the stock
exchange.
Leverageconsists
of various financial instrument or borrowed capital such as margin used to
increase the potential return of an investment of a firm. It is that amount of
debt used to finance a firm‟s assets. It is assumed and expected that, the
greater the amount of debt, the more stringent is the monitoring of managers
and therefore firms‟ performance will be superior. Thus, firms with a
significant level of debt than equity is said to be highly levered.
A
firm is the amalgamation of the various assets and liabilities (tangibles,
intangibles, financial, fictitious and current assets; current and long term
liabilities) that comprise the totality of the firm. The physical assets of a
firm can be valued on a similar basis to the firm itself. But, the
distinguishing features of “current assets” and “current liabilities”
(liquidity position) is that a firm cannot operate effectively and efficiently
without them being present, thus, we could say that they are not separable from
the firm itself. Finally, intangible assets can be considered as a variable
likely to influence financial performance. Our attention is been drawn to this
factor because economies are becoming knowledge and technology-based, more so
the intangible elements of firms are becoming fundamental determinants of firm
current and future competitiveness as well as firm value and growth. Similarly,
Bernard (2005) identified that it is impossible to navigate a business to success
without the necessary performance information (intangibles inclusive) to guide
your strategic decision making. Intangible assets include research and
development expenditures, the acquisition of human resource, advertisement,
patient right, goodwill and so on.
In
view of the basic challenges facing business enterprises in this period of
extensive innovation and modernization in business, it becomes pertinent to
examine the factors that impact performance of firms in order to enable
business enterprises concentrate on their competitive advantage. This study is
aimed at determining financial performance of foods and beverages companies in
Nigeria, using some internal variables of firms.
MSC Project Topics in Accounting and Finance
DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED FOODS AND BEVERAGES COMPANIES IN NIGERIA
Department: Accounting and Finance (M.Sc)
Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References, Appendix.
Delivery: Email
Delivery: Email
No. of Pages: 95
NB: The Complete Thesis is well written and ready to use.
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